Insights

Because of the Dodd-Frank Act, as of July 21, 2011, two federal agencies share enforcement authority over the Fair Debt Collection Practices Act – the Federal Trade Commission and the fledgling Consumer Financial Protection Bureau. Under Dodd-Frank, the CFPB is also vested with sole responsibility for issuing rules under the FDCPA. No rulemaking authority existed in the FDCPA’s 34-year history – either with the FTC or elsewhere.

But don’t expect the CFPB to bolt out of the gate with a flurry of proposed rules. At the recent American Bar Association annual meeting in Toronto, an attorney with the CFPB commented that the Bureau is not likely to issue rules in the immediate future under the mountain of statutes for which it now has responsibility. He estimated that the CFPB will spend most of its efforts in the next 18 months or so with rulemakings in the mortgage area. In the meantime, the FTC continues to remain actively involved with the FDCPA. Case in point – on July 27, 2011, the FTC released a “Statement of Policy Regarding Communications in Connection With the Collection of Decedents’ Debts.” As noted, the FTC has no rulemaking authority under the FDCPA, but it has issued staff interpretations (including the FTC Staff Commentary on the FDCPA) and apparently has plans to continue to issue policy statements such as this one.

The Policy Statement, as the title would indicate, describes what the FTC believes to be appropriate conduct for a debt collector when attempting to collect decedents’ debts. From what it has learned during previous investigations, the FTC is concerned that to recover a decedent’s debts, some debt collectors contact the decedent’s relatives, even though those relatives may have no authority to pay the debts from the decedent’s estate and no legal obligation to pay the debts from their own assets. The FTC wants to balance this concern with the legitimate needs of debt collectors and avoid the problem of sorting out these debts in the probate process, which would be costly to both the debt collector and the decedent’s estate. The Policy Statement, therefore, sets forth four guidelines.

First, when contacting the family members of a decedent, the debt collector must state that it is looking for the person who is responsible for paying the outstanding bills of the decedent “from the decedent’s estate.” The debt collector should not ask “leading” questions of family members, such as “did you pay the funeral expenses” or “are you the one handling the decedent’s final affairs?” In fact, prior to making such contacts, the debt collector must make a “good faith effort” to ascertain the executor of the estate from information contained in public records, and only then may such contacts be made.

Second, a debt collector cannot reveal that the decedent owes a debt until it is established that the debt collector is talking to the actual executor of the estate. This is especially true when the debt collector sends letters addressed to the “Executor of the Estate” or “The Estate of . . . .” The FTC interprets such letters to be location communication letters, which are meant to discover the identity of the debtor and cannot contain specific information about the debt, rather than communication letters, which are letters sent to the actual debtor and are required to contain specific information about the debt. The FTC has created this distinction because its “law enforcement experience suggests that letters addressed to the estate of an unnamed administrator or executor often are opened by individuals who do so in an effort to help out, but who lack the authority to pay the decedent’s debts from the estate’s assets.”

In addition, when searching for the person responsible as the executor of the estate, the debt collector may make mention of “outstanding bills,” but may not state or imply that the decedent was delinquent on those bills. This mandated vague reference to “outstanding bills,” according to the FTC, balances the legitimate needs of the collector with the privacy interests of the decedent.

Third, the debt collector must affirmatively disclose that the person with authority to pay the debts from the estate is not required to use his own assets to pay the decedent’s debt. The FTC provides two options: (1) state that the debt collector is seeking payment from the assets in the decedent’s estate; or (2) state that the individual cannot be required to use his own assets, or assets the individual owned jointly with the decedent, to pay the decedent’s debt. Once the collector has reason to believe that a particular asset is not part of the decedent’s estate, the debt collector may not ask any questions about that particular asset and should not otherwise create the impression that the particular asset is subject to the payment of that debt.

Finally, if the debt collector does reach the person with authority to pay the bills from the estate of the decedent, that person stands in the shoes of the consumer and must be given notice that he is entitled to proof of the decedent’s debt and has the right to contest it. The Policy Statement does not clearly indicate what this means, such as whether that person is entitled to a validation notice, though it would appear that the executor of the estate is probably entitled to a validation notice once he or she is identified.

This Policy Statement is problematic for a few reasons. For example, under the FDCPA, the term “consumer” means “any natural person obligated or allegedly obligated to pay any debt.” The Policy Statement, however, uses that term loosely and seems to expand the protections only afforded to a “consumer” as defined by the FDCPA to persons not allegedly obligated to pay a debt – such as to the estate of a decedent, which is not a natural person. The Policy Statement also imposes notice requirements and investigation requirements and sets forth explicit language a debt collector must now use or not use. These requirements and prohibitions are not found in the actual text of the FDCPA. In fact, the Policy Statement questions whether “strict adherence” to the “literal” language of the Act makes sense in certain circumstances.

The import of the Policy Statement is unclear. Certainly, debt collectors subject to the FTC’s jurisdiction under the FDCPA should give it heed because it does reflect the FTC’s policy views. At the same time, it is not a rule and does not carry the same weight as a law, and it is unclear how the CFPB will consider the Policy Statement when it decides to initiate its own rulemaking proceedings under the FDCPA. This Policy Statement might also be viewed as a sign of things to come. When the CFPB begins considering rules under the FDCPA, it may decide to use its broad authority to expand the scope of the Act to situations not necessarily contemplated by Congress. The CFPB’s rulemaking authority is very broad: to carry out the purposes of the Act. The CFPB will not be constrained by the specific language of the FDCPA and may expand the FDCPA’s narrow definition of “consumer” to include other persons or entities affected by debt collection activity.

There is much uncertainty as to what will transpire over the next 24 months, such as what Congress might do with the CFPB, whether the CFPB will ever have a director, and what the CFPB will do with not just the FDCPA, but with all the consumer protection laws it must now enforce. But one thing is certain, it should be very interesting.

In the meantime, the FTC’s Policy Statement becomes effective on August 29, 2011.

R. Glenn Knirsch is an associate in the Maryland office of Hudson Cook, LLP. Glenn can be reached at 410-865-5407 or by email at gknirsch@hudco.com.